NDSU Extension Service - Ramsey County

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My Tax Refund Arrived!

My Tax Refund Arrived!

 

Tax refund time can be a dangerous time for money managers.  The windfall of a tax refund can derail the best budgets. Chances are your refund could be a fairly significant amount. The average federal refund in 2015 was nearly $2,800.

The danger factor comes in when those dollars are spent completely on “wants” and the outstanding debt of “needs” is ignored. There is a reason there are more “sales” on big screen TV’s at this time of the year!

What might be on your “needs” list? Consider using your tax refund for some of the following personal finance goals.

-Start or build an emergency fund. Nearly 3 out of 10 Americans have no emergency savings, according to a recent Bankrate survey. Most financial experts recommend that you have the equivalent of at least 6 months' worth of expenses stashed in a savings account. An emergency fund can be a solid financial cushion should anything surprise you, such as an emergency room visit.

-Clear up credit card debt. This is particularly appropriate if you are paying the highest interest rates. Removing this debt can give you breathing room and allow you to begin working on paying off other lower interest debt.

-Save for retirement.  Most Americans are not saving enough for retirement.  Perhaps you are fortunate to have an employer that matches some of your contributions. If so, you are basically doubling that money. If you don't have a workplace retirement plan, open a traditional or Roth IRA.

            -Open a 529 college savings plan for your children. The contributions aren't deducted from income for tax purposes, but when the money is withdrawn to pay for college costs, the distribution is tax free, as long as it is used for educational purposes.

And finally remember, tax season is also collection season. Tax refund season is an important time for collection companies, as they are fully aware this is the one time of the year consumers will have a large sum of money.

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